Inside the Market

Each year, USDA begins a new season of making estimates in its "May World Agricultural Supply and Demand Estimates" (WASDE) report, the things we don't know about the next 15 months far outweigh the things we do know. The question of how many acres of each crop will be planted is usually answered by June 30, and weather provides its own answers throughout the growing season.

DEMAND SURPRISES

The demand side of the grain market is gradually consistent from a long-term view, but from one year to the next, demand can be full of surprises. China's voracious appetite for corn and soybeans in 2020-21 will go down as one of the most remarkable and unexpected turn of events on record, and has dramatically changed the landscape for corn and soybean prices in 2021.

Moving into the new 2021-22 season, estimating demand hasn't become any easier, and we have to stay alert for more surprises. Already in 2021, grain markets have dealt with renewed concerns about African swine fever and the persistence of coronavirus in India. The year is still young.

Regarding the question of whether China's demand for corn and soybeans will remain strong in 2021-22, early indications are that it will. In the May WASDE report, USDA estimated China will import 26 million metric tons (mmt) or 1.02 billion bushels (bb) of corn from all sources, the same amount estimated in the current season.

As far as we can tell, China's corn production has been roughly flat for years, while demand for corn has been rising. The 2020-21 year was the fourth consecutive year corn demand exceeded production in China, and the new season will likely be the fifth.

The International Monetary Fund estimates China's GDP will be up 8.1% in 2021, a remarkable track record of growth that supports its rising demand for protein. For soybeans, USDA expects China to import 103 mmt or 3.78 bb from all sources, up from 100 mmt from the current season.

MARKET CLUES

Aside from USDA's view, the market's current clues continue to support the notion that China's demand for corn and soybeans is not slowing. To date, China has signed up for 891 million bushels (mb) of U.S. corn in 2020-21 and 423 mb already in 2021-22.

Even with those large purchases, September corn on China's Dalian exchange is trading near its highest prices in 2021, the U.S. equivalent of $10.97 a bushel.

Soybeans on China's Dalian exchange are sending a similar message. Even after purchasing 1.31 bb from the U.S. in 2020-21, China is now helping itself to a large share of Brazil's record harvest but has yet to show signs of slowing down, trading 4% below its high of the year at the equivalent of $18.48 a bushel.

Over the next 15 months, there will likely be twists and turns in the road ahead, but as things now look at the start of 2021-22, China's bullish demand should continue to be an important source of support for U.S. corn and soybean prices, at their highest levels since 2013.

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-- Read Todd's blog at about.dtnpf.com/markets.

-- You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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